From Morguard To Club Resorts: The Evolution Of The Real And Substantial Connection Test

Introduction 1

Since the Supreme Court of Canada's decision in Morguard Investments Ltd. v. De Savoye,2 the test for when a court can assume jurisdiction over an out‐of‐province defendant has been whether there is a "real and substantial connection" between the forum and the subject matter of the litigation. Yet post‐Morguard, the courts have consistently struggled with how to determine when a real and substantial connection exists.

The Supreme Court of Canada's decision in Club Resorts Ltd. v. Van Breda3 is but the latest attempt at articulating a common law test for the real and substantial connection requirement. The simplicity of the new Club Resorts framework, however, is a welcome change from past formulations, which were cumbersome in practice and did not provide sufficient clarity on when a court can assume jurisdiction over a claim.

This paper tracks the evolution of the real and substantial connection test for assumed jurisdiction from Morguard to Muscutt and, most recently, to Club Resorts. It also compares the new Club Resorts test with the statutory framework laid out in the Court Jurisdiction and Proceedings Transfer Act ("CJPTA"), a model law adopted in several Canadian provinces and territories to govern matters of extraprovincial jurisdiction. Finally, it examines the relationship between jurisdiction simpliciter and the doctrine of forum non conveniens.

The purpose of this paper is to provide a basis for discussion on whether Club Resorts has provided an improved real and substantial connection test. The constitutional dimensions of the real and substantial connection requirement for assumed jurisdiction are beyond the scope of this paper. We also make only limited reference to Club Resorts' two companion cases, Éditions Écosociété Inc. v. Banro Corp.4 and Breeden v. Black5, since the discussion in those cases mainly pertain to forum non conveniens in the context of multi‐jurisdictional defamation claims.6

Morguard and the "Real and Substantial Connection" Requirement for Assumed Jurisdiction

Under conflict of law principles in Canada, there are three grounds upon which a court in one province has jurisdiction over a defendant in another province or country (a.k.a. jurisdiction simpliciter). The first two grounds, presence‐based jurisdiction and consent‐based jurisdiction, are considered "traditional".7 Under the former, the court has authority as of right over the defendant because the defendant was physically present in the jurisdiction at the time he or she was served with the originating process. Under the latter, the basis for the court's jurisdiction is that the defendant attorned to it by prior agreement or by responding to the plaintiff's claim. Both traditional bases of jurisdiction provide grounds for the recognition and enforcement of extra‐provincial judgments.8

The third ground upon which a court has jurisdiction over an out‐of‐province defendant is "assumed" jurisdiction.9 Under this ground, the court can take jurisdiction because there is a "real and substantial connection" between the forum and the subject matter of the proceeding.

Assumed jurisdiction is a relatively recent development in the Canadian common law. It was introduced by statute in England in the mid‐19th century and later included by way of ex juris service rules in the various provincial rules of court. However, in Ontario, until 1975 a plaintiff who sought to commence proceedings against an out‐of‐province defendant had to seek leave of the court by ex parte motion. Leave was rarely granted due to the court's concern over interference with the territorial sovereignty of the foreign state. It was not until the Supreme Court of Canada's decision in Moran v. Pyle10that Canadian courts began recognizing jurisdiction over an ex juris defendant for damages sustained in the local forum. In Moran, Dickson J. (as he then was) recognized the need to reform Canada's law of jurisdiction to bring it in line with the modern realities of integrated interprovincial and international commerce, travel and trade. He observed in passing that English courts were moving towards a form of "real and substantial connection" requirement.

Fifteen years later, in Morguard, the Supreme Court of Canada formally recognized the "real and substantial connection" requirement as the basis for assumed jurisdiction. The facts of Morguard concerned the enforceability of a foreign judgment; the applicant commenced proceedings in British Columbia to enforce a judgment rendered in Alberta against a B.C. resident. La Forest J. observed, however, that the principles guiding a court's enforcement of an out‐of‐province judgment should be the same as the principles underlying assumed jurisdiction. He wrote: "The conditions governing the taking of jurisdiction by the courts of one province and those under which [their judgments] are enforced by the courts of another province should be viewed as correlative."11

Morguard recognized that while modern realities needed an expansion of jurisdictional principles, there had to be some limit to the reach of a court's authority over out‐of‐province defendants. This limit would best be achieved by the requirement that a court could only entertain claims that had a "real and substantial connection" to the forum. The requirement of a real and substantial connection best reflected principles of order and fairness: it was a reasonable balance between the rights of the parties by ensuring that defendants could not escape the court's authority merely by being outside the forum, while also ensuring that plaintiffs could not begin actions in a forum with little or no connection with the parties or the claim.

However, while Morguard recognized the "real and substantial connection" requirement for assumed jurisdiction, it did not define it. Furthermore, as Sharpe J.A. observed in Muscutt v. Courcelles,12 Morguard was ambiguous as to what the nature of the connection had to be: certain passages in Morguard suggested that the connection that was real and substantial had to be one that linked the forum with the defendant, while other passages suggested that the connection must be between the forum and the claim, or specifically the damages suffered by the plaintiff.

The Supreme Court of Canada was given several opportunities in later cases to articulate a test for a real and substantial connection but declined to do so, holding that the doctrine must remain flexible. In Hunt v. T&N plc,13 for example, the Court wrote, "[t]he exact limits of what constitutes a reasonable assumption of jurisdiction were not defined, and I add that no test can perhaps ever be rigidly applied; no court has ever been able to anticipate all of these."14 In Tolofson v. Jensen; Lucas (Litigation Guardian of) v. Gagnon,15 the Court again described a "real and substantial connection" as "a term not yet defined".16

The Muscutt Test (2002): Eight Contextual Factors

The Court of Appeal for Ontario's decision in Muscutt provided, for the first time, a multifactored common law test for determining a real and substantial connection. The facts in Muscutt involved a plaintiff from Ontario who suffered personal injuries in a car crash in Alberta involving Alberta defendants. Muscutt was also heard alongside four other cases that involved Ontario residents who suffered injuries outside Canada where the plaintiffs filed suits in Ontario. The central issue in all the cases was whether the courts in Ontario had jurisdiction over the matters.

Writing for the Court of Appeal, Sharpe J.A. acknowledged in Muscutt that the real and substantial connection test, as introduced by Morguard, could not be reduced to a fixed formula. However, clarity and certainty were also important, and Sharpe J.A. found that it would be useful to provide motion judges and litigants with some structured guidance as to when the court could assume jurisdiction over an out‐of‐province defendant.

Sharpe J.A. rejected the notion that a real and substantial connection could only exist if the defendant had some connection to the forum. Instead, he took a broader approach and embraced the notion that both a connection between the forum and the defendant and a connection between the forum and the claim could form the basis of assumed jurisdiction. He set out eight contextual factors (later known as the "Muscutt factors" or the "Muscutt test")...